Book I, Chapter 13: Indian Finance: Genesis of the Indian Debt

CHAPTER XIII

INDIAN FINANCE. GENESIS OF THE INDIAN DEBT

THE evidence recorded by the Parliamentary Committees, from which we have made large extracts in the preceding chapter, was placed before the public in 1852 and 1853. The inquiry into the administration of Indian affairs by the East India Company was thorough and complete. There was a strong opinion, specially among the merchants and manufacturers of Great Britain, that the Crown should assume the direct administration of India. Ministers of the Crown, who had so often made war and peace in India without consulting the Directors, were nothing loth to assume direct management of Indian affairs. Nevertheless, the nation felt some hesitation in setting aside a Company which had built up the Indian Empire for them. Accordingly a compromise was effected.

The Company’s Charter was once more renewed; but the Act of 1853 did not fix any definite term for the renewed Charter. It declared, simply, that the Indian territories should remain under the Company in trust for the Crown until the Parliament should otherwise direct. The number of Directors was reduced from twenty-four to eighteen, and the Crown assumed the power of appointing six out of these eighteen Directors. And the Board of Control retained its power of control.

Other changes were made by the new Charter Act. It authorised the appointment of a Governor or a Lieutenant-Governor for Bengal. That Province, which had so long been ruled by the Governor-General himself, had its first Lieutenant-Governor in 1854. The Act also authorised the formation of another Presidency or Lieutenant-Governorship. Accordingly the Punjab was placed under a Lieutenant-Governor in 1859. Among the other important changes, effected by this Act, we may mention that the Council of the Governor-General was enlarged for legislative purposes by the addition of Legislative Members. And the right of patronage to Indian appointments was taken away from the Court of Directors. It was henceforth to be exercised according to regulations framed by the Board of Control, and these regulations threw open the Civil Service of India to general competition.

With these changes, some of which curtailed the powers of the Company and added to the influence of the Crown, the Double Government which had been so strongly supported by John Stuart Mill was continued. It lasted for a few years longer, until the Indian Mutiny gave the British nation and the British Parliament a suitable occasion and an ostensible reason for setting aside the Company altogether. In closing our account of the Company’s rule in India, we shall, in the present chapter, briefly review their financial administration.

The figures showing the revenues and expenditure of India, during the twenty-one years which elapsed from the accession of Queen Victoria to the abolition of the East India Company, are an interesting study, as they faithfully reflect the political history of the period. The following statement has been compiled from official records.[^49] They will show the proportion of the total revenues which was derived from the Land Tax, and the proportion of the total expenditure which was incurred in England as Home Charges.

It will be seen from these figures that in the first year of Queen Victoria’s reign India showed a surplus, even after paying over two millions as Home Charges. This was due to the careful administration of Lord William Bentinck, and to the reforms and retrenchment effected by him and his successor, Sir Charles Metcalfe. But Lord Auckland arrived in India in 1838, and initiated the ambitious policy dictated by Lord Palmerston. And from that year India lost her surplus and showed a deficit, which continued under the administration of his successor, Lord Ellenborough.

The Sikh wars of the two next Governors-General, Hardinge and Dalhousie, made matters worse; and it was not until the conclusion of the last Sikh War, and the annexation of the rich province of the Punjab, that India once more showed a surplus in 1849-50. But the young Imperialist who ruled the destinies of India soon lost the surplus. Before the close of Dalhousie’s administration the gross expenditure of India went up by leaps and bounds to over thirty millions in 1853-54; and in spite of Dalhousie’s annexations of Nagpur and other rich states, India continued to show a deficit up to the year of his departure, 1855-56.

Lord Canning showed a surplus in the first year of his administration, owing mainly to the annexation of Oudh, which had been effected immediately before his arrival. But the surplus was changed into a heavy deficit of ten millions in 1857-58, the year of the Indian Mutiny.

Another interesting but melancholy fact which we learn from the foregoing table is the steady increase of the expenditure in England—the Home Charges. Great Britain and India were equally gainers by the establishment and maintenance of the British Empire in India, and the cost of the Empire should have been shared by the two countries. And it would have been an act of strict justice if India had been charged nine-tenths of that cost incurred in India, and England had paid the remaining one-tenth, which was then incurred in England. But the sword of the conqueror is thrown into the scale to-day as it was in the days of Brennus; and financial arrangements are never dictated by strict justice between a subject and a ruling race. To India the annual Economic Drain was a pure loss; the money flowed out of the country never to return again; it went from a poor country to fructify the trades and industries of a rich country.

“With reference to its economical effects upon the condition of India,” wrote a distinguished officer whose meritorious work in India we have reviewed in Chapter V. of this book, “the tribute paid to Great Britain is by far the most objectionable feature in our existing policy. Taxes spent in the country from which they are raised are totally different in their effects from taxes raised in one country and spent in another. In the former case the taxes collected from the population at large are paid away to the portion of the population engaged in the service of Government, through whose expenditure they are again returned to the industrial classes. They occasion a different distribution, but no loss of national income.”

“But the case is wholly different when the taxes are not spent in the country from which they are raised. In this case they constitute no mere transfer of a portion of the national income from one set of citizens to another, but an absolute loss and extinction of the whole amount withdrawn from the taxed country. As regards its effects on national production, the whole amount might as well be thrown into the sea as transferred to another country.”

“The Indian tribute, whether weighed in the scales of justice or viewed in the light of our true interest, will be found to be at variance with humanity, with common sense, and with the received maxims of economical science. It would be true wisdom, then, to provide for the future payment of such of the Home Charges of the Indian Government, as really form the tribute, out of the Imperial Exchequer. These charges would probably be found to be the dividends on East India stock, interest on Home Debt, the salaries of officers and establishments and cost of buildings connected with the Home Department of the Indian Government, furlough and retired pay to members of the Indian Military and Civil Services when at home, charges of all descriptions paid in this country connected with British troops serving in India, and a portion of the cost of transporting British troops to and from India.”[^52]

In another work,[^53] tracing the rise and consolidation of the British Empire in India down to the accession of Queen Victoria, we have seen that the total revenues of India, from the commencement of the British rule down to 1837, exceeded the total expenditure incurred in India, in spite of the high pay of British officials and the wasteful expenditure of Indian wars. The figures which we have given in the present chapter show a similar excess of the income over the expenditure incurred in India during the first twenty-one years of the Queen’s reign from 1837 to 1858. Therefore, if India had been relieved of Home Charges from the commencement of British rule, India would have had no Public Debt when she was transferred from the Company to the Crown in 1858, but a large balance in her favour. The whole of the Public Debt of India, built up in a century of the Company’s rule, was created by debiting India with the expenses incurred in England, which in fairness and equity was not due from India. If the financial relations between India and Great Britain during the century had been referred to an impartial judicial tribunal, there can be little doubt what the verdict of that tribunal would have been. Great Britain had gained far more from India than was represented by the Home Charges; Great Britain should in equity and fairness have borne those charges; and India morally and justly had no Public Debt in 1858, but, on the contrary, could claim credit for excess payments made.

In justice, however, to the East India Company, it should be stated that the Home Charges under their administration was comparatively small, and was a little over one-tenth of the annual revenues of India. In the twenty years preceding the Mutiny the revenues rose from twenty millions to thirty-one millions, and the Home Charges rose from two and a half millions to three and a half millions. One of the saddest results of the administration of India under the Crown is that the Home Charges have been permitted to increase by leaps and bounds, not only absolutely, but relatively to the revenues, the Crown Government being irresponsible. The result justifies the opinion of John Stuart Mill, quoted in the last chapter, that the administration of India through a Secretary of State and his Council “would be the most complete despotism that could possibly exist” under British rule.

The total Indian Debt, bearing interest, was little over 7 millions in 1792, and had risen to 10 millions in 1799. Then followed Lord Wellesley’s wars, and the Indian Debt rose to 21 millions in 1805, and stood at 27 millions in 1807. It remained almost stationary at this figure for many years, but had risen to 30 millions in 1829, the year after Lord William Bentinck’s arrival in India. That able and careful administrator was the only Governor-General under the East India Company who made a substantial reduction in the Public Debt of India, and on the 30th April 1836 the Indian Debt was £26,947,434.[^54]

The following table shows the Public Debt of India for twenty-one years, from the year of Queen Victoria’s accession to the abolition of the East India Company. The figures have been compiled from official records.[^55]

The increase of 2½ millions in the total Debt in 1839-40, shown in the table, was not a real one; the apparent rise is simply due to two different systems of keeping the accounts followed in the two records from which the figures have been taken, as has been explained in the footnote. But from 1840-41 Lord Auckland’s unfortunate Afghan War began to tell on the finances of India, and the total Debt of India rose from 34½ millions to 43½ millions by 1844-45. The East India Company were not alone in protesting against the expenses of the Afghan War being thrown on the finances of India; there were many members of the House of Commons who agreed with John Bright when he said: “Last year I referred to the enormous expense of the Afghan War—about 15 millions sterling—the whole of which ought to have been thrown on the taxation of the people of England, because it was a war commanded by the English Cabinet, for objects supposed to be English.”[^56]

The annexation of Sindh by Lord Ellenborough, the Sikh Wars of Lord Hardinge and Lord Dalhousie brought fresh liabilities, and the total Debt of India rose to 55 millions by 1850-51. There was a fluctuation after this, and endeavours were made to reduce the Debt, but it rose in the last year of Lord Dalhousie’s administration to 59½ millions. The Mutiny which occurred in 1857 raised the Debt in one year by 10 millions, so that on April 30, 1858, the total Debt of India stood at 69½ millions sterling.

If ever there was a case of justifiable rebellion in the world, says an impartial historian,¹ it was the rebellion of Hindu and Mussulman soldiers in India against the abomination of cartridges greased with the fat of the cow and the pig. The blunder was made by British Administrators, but India paid the cost. Before this, the Indian Army had been employed in China and in Afghanistan; and the East India Company had received no payments for the service of Indian troops outside the frontiers of their dominions. But when British troops were sent to India to suppress the Mutiny, England exacted the cost with almost unexampled rigour.

“The entire cost of the Colonial Office, or, in other words, of the Home Government of all British colonies and dependencies except India, as well as of their military and naval expense, is defrayed from the revenues of the United Kingdom; and it seems to be a natural inference that similar charges should be borne by this country in the case of India. But what is the fact? Not a shilling from the revenues of Britain has ever been expended on the military defence of our Indian Empire.”

“How strange that a nation, ordinarily liberal to extravagance in aiding colonial dependencies and foreign states with money in their time of need, should, with unwonted and incomprehensible penuriousness, refuse to help its own great Indian Empire in its extremity of financial distress.”

“The worst, however, is not yet told; for it would appear that when extra regiments are despatched to India, as happened during the late disturbances there, the pay of such troops for six months previous to sailing is charged against the Indian Revenues, and recovered as a debt due by the Government of India to the British army pay-office.”

“In the crisis of the Indian Mutiny, then, and with the Indian finances reduced to an almost desperate condition, Great Britain has not only required India to pay for the whole of the extra regiments sent to that country, from the date of their leaving these shores, but has demanded back the money disbursed on account of these regiments for the last six months’ service in this country previous to sailing for India.”¹

But a greater man than Sir George Wingate spoke on the subject of the Mutiny expenditure in his own frank and fearless manner. “I think,” said John Bright, “that the 40 millions which the revolt will cost, is a grievous burden to place upon the people of India. It has come from the mismanagement of the Parliament and the people of England. If every man had what was just, no doubt that 40 millions would have to be paid out of the taxes levied upon the people of this country.”²

We make these extracts and mention these facts, not to recall an almost forgotten controversy, but simply with the object of clearly explaining the genesis of the Indian Debt. The popular impression is that the Indian Debt arose out of capital spent by England for the conquest and administration of India, and for the development of her resources. The facts explained in the present chapter will show that that was not the genesis of the Indian Debt up to 1858. India had paid for her own conquest and her own administration; and what little English gold had found its way to India down to the last year of the Company’s rule was an insignificant portion of the tribute India had paid for a century. It is impossible to calculate even approximately what this payment amounted to. Sir George Wingate reckons it at 100 millions from the beginning of the nineteenth century down to 1858, without calculating interest. Montgomery Martin reckons it at over 700 millions during the first thirty years of the century, calculating compound interest at Indian rate of 12 per cent. And these calculations exclude the sums remitted from India in the eighteenth century.

It was this tribute, exacted as Home Charges, which was the genesis of India’s debt. India paid for her own administration; paid also for the frequent wars of conquest and annexation in India. But she could not pay the full tribute demanded over and above these local expenses. Deficit occurred year after year, and thus a Debt was piled up which amounted to sixty millions when Lord Dalhousie left India. And the first year of the Mutiny expenses brought it up to seventy millions when the East India Company was abolished.

The fresh charges which were thrown on India, owing to the transfer of the Government, will be described in the next chapter. The Empire of India was purchased by the Crown from the Company, but the people of India were charged with the purchase money. The value received by the shareholders of the Company’s stock was not paid by the British Crown which won an imperial property, but was added to the Indian Debt.

Would England at least guarantee this Debt thus accumulated? That would reduce the annual interest on the Debt by over a million sterling, and would so far relieve the tax-payers of India. Lord Stanley, afterwards Lord Derby, cautiously suggested it in 1859.

“I am aware the uniform policy of the Parliament and the Government of this country has been to decline all responsibility in regard to the Debt of India, which has been held to be a charge only on the Indian Ex-chequer. Dealing with the present state of affairs I may say at once that I am not going to recommend any change in that policy. I know well the alarm which any such proposition would create, and I know the refusal which it would inevitably receive. But this is a question which will recur again and again, and which will have to be considered in the future as well as in the present."

“I would likewise ask the House to bear in mind that if ever the time should come when the established policy in this respect should undergo a change, and when a national guarantee should be given for these liabilities, that guarantee would operate to reduce the interest paid upon the Indian Debt by no less than £750,000, or even £1,000,000, which, formed into a sinking fund, would go far to pay off the whole.“¹

Six months after it was John Bright himself who opposed the idea of giving an Imperial guarantee to the Indian Debt. And his reasons were characteristic.

“I do not oppose an Imperial guarantee because I particularly sympathise with the English tax-payers in this matter. I think the English tax-payers have generally neglected all the affairs of India, and might be left to pay for it. . . . But I object to an Imperial guarantee on this ground—if we left the Services of India, after exhausting the resources of India, to put their hands into the pockets of the English people, the people of England having no control over Indian expenditure, it is impossible to say to what lengths of unimagined extravagance they would not go ; and in endeavouring to save India may we not go far towards ruining England ? " ²

Even John Bright did not see that the people of England would have very soon ceased to neglect the affairs of India, and would have obtained a real control over Indian expenditure, if some share of the liability of the Indian Debt had been thrown on them.

Footnotes

¹ Lecky’s Map of Life.